How Secure is Your Superannuation?

Superannuation can be tricky. Many people would assume that if they have nominated a beneficiary for their superannuation that their wishes would be carried out.

How is Superannuation Distributed?

There are three options available for distribution of superannuation funds in the event of death.

Lump Sum to the Members Deceased Estate: This option means that the member’s estate will receive all or part of the superannuation sum.

Lump Sum to Dependants of the Member: This option allows a member to nominate a binding beneficiary/s to receive their superannuation.More than one person may be nominated, but they must all be dependants of the member.

Pension or Annuity to Income Dependants of the Member

Who is a Dependant?

A Dependant for the purpose of a lump sum payment (note: a dependant for a pension, annuity or income stream is defined separately) is one of broadly 3 types of person:

A spouse. A spouse may be the person married to the member, or a de facto partner. A de facto can be any other person not legally married to the member, but has lived with the member in an “interdependent relationship” as a couple.

An Interdependent relationship means the person has close personal relationship to the member. Necessarily, the person must have lived with the member and one of them provides for financial support, or domestic support and personal care.

A person dependent on the member for financial support. This may include the member’s relatives who are financially dependent for support.

Children of the member of any age. This will include the children of the spouse, adopted children and ex-nuptial children;

Superannuation law gives preference to dependants and your legal personal representative (your estate) in the event of the your death. For the purpose of superannuation, your estate is also considered a dependant and able to be selected in a binding nomination.

Nominating a Person who is not a Dependant.

You cannot nominate a person who is not a dependant to receive your superannuation from your superannuation trustee. Should you wish for your superannuation to fall to a person who is not a dependant, you must arrange for your superannuation to be paid to your legal personal representative (your estate). You must then deal with that money in your will by nominating a beneficiary to receive all or part of the sum. If a person who is not a dependant is nominated, that nomination will be ignored.

What happens if no beneficiary is nominated?

If no beneficiary is nominated, or a beneficiary is nominated who is not a dependant, the trustee will distribute the superannuation fund to any dependants, to a legal representative, or both.

The trustee may consider any person to receive the benefits if the trustee believes that the person is qualified to become a beneficiary. In doing so, the trustee may take into consideration the following:

Any application made by any family member or any other person who considers they have a valid claim;

The beneficiaries nominated in the Will; or

Any other information available to identify other potential recipients.

Seek Legal Help

Remember superannuation can be tricky. Legal advice can help you fully understand how to nominate a beneficiary/s, understand the tax implications that any nomination can have, and ensure that a nomination is legal and binding, and stays legal and binding.

The Story of Jack and His Father

Jack separated with his ex-wife Sue in 2005.They completed a property settlement and filed it in the Family Court. The settlement dealt with their assets appropriately and it also stated that neither would make a claim on each other’s superannuation.

Jack and Sue did not have any children and Jack nominated his father Bill to be the beneficiary of his superannuation. Every year Jack received member statements showing that the nominated beneficiary was his father Bill.

Jack had never made a Will, and upon his death his father Bill made an application to the superannuation fund to receive Jack’s superannuation.

However Bill was not a dependant of Jack and the superannuation fund refused to pay it to him (the nominated beneficiary). The superannuation was instead paid to his estate.

Because Jack had died without a Will and had not been divorced (even though Jack and Sue had completed a property settlement), Sue was entitled to Jack’s superannuation.

If Jack had made a Will and left his superannuation to his father Bill, then that would have allowed the superannuation to be paid to Jack and not Sue.

The Story of Julie & Lyn

When Julie started work she was given superannuation forms to complete. Julie nominated her mother Lyn as the beneficiary of her superannuation. Again, Julie received member statements each year showing Lyn to be the nominated beneficiary.

Lyn and Julie’s father Greg had separated many years ago. Greg had never provided for Julie and Lyn raised Julie without any financial support from Greg.

When Julie died in a car accident, Lyn as the nominated beneficiary went to claim Julie’s superannuation. But Lyn was not a dependant of Julie, and the superannuation fund refused to pay it out to Lyn and instead paid it to Julie’s estate.

Julie did not have a will, and under the laws of intestacy Julie’s estate, including the superannuation, was shared equally between Lyn and Greg.

If Julie had made a Will that provided for her superannuation to be paid to Lyn, then Lyn would have received the balance of the superannuation account.